Outsourcing In Government Has Broad Ramifications

  April 1, 2014

Outsourcing functions in the facility management department is often pursued by organizations as a cost-cutting strategy. However, this expected result might not always materialize, at least when it comes to government employees, according to a recent study by the Colorado Center for Policy Studies.

The study argues that governments have a responsibility to their constituency to consider economic development and how the jobs comprising the government foster that economy. However, the officials making the decision on keeping a function in-house or not do not often consider the larger ramifications of outsourcing government positions to third-party firms.

The study found the decision to outsource government jobs had a cascading negative effect, ranging from creating distance and opacity between taxpayers and their government, to negatively impacting the local economy through lower salaries — which in itself is cited with a separate cascade of negative effects.

In addition, poor quality of services negatively impacts end users — citizens, in their area of focus — and the study cites poor service quality as the cause behind 61 percent of outsourced contract terminations. Governments also cited insufficient savings 52 percent of the time as the reason outsourced contracts were terminated.

The study findings are not wholly opposed to outsourcing, but stress that the outsourcing relationship must bring innovation that leads to higher efficiency or quality of service than what can be achieved in-house.

The study, "The Decision to Contract Out: Understanding the Full Economic and Social Impacts," is available at the Colorado Center for Policy Studies at http://www.uccs.edu/~ccps/.

The study also includes a step-by-step guide on how to estimate the effects of outsourcing on the local economy in Appendix A, and also at this link.


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